Top trends in commercial vehicles market

Improved economic activity, higher construction and road infrastructure development and improvement in mining activities helped India's commercial vehicles industry register its highest sales performance in 2017-18. With BS-VI emission norms to be implemented from April 2020 and fuel prices skyrocketing, CVs industry is all set for interesting changes in the next few years, says Rakesh Rao.

Driven by strong performance of the truck segment, India's commercial vehicles (CVs) industry reached its highest sales peak after 5 years in 2017-18 with 856,453 units being sold. “The CVs industry reported strong growth in 2017-18, with volumes expanding at 20 per cent compared to 2016-17. The industry recorded a 42 per cent year to date (YTD) growth in 2018-19. Among the various sub-segments of the CV industry, the goods carrier/truck segment expanded healthily in both periods, while the passenger carrier/bus segment has revived in the current fiscal post a year of subdued sales in 2017-18,” states Shamsher Dewan, VP Corporate Ratings ICRA. The robust growth of CVs industry comes on the backdrop of a lower base which saw the implementation of Bharat Stage (BS) IV rules and GST implementation. Shruti Saboo, Associate Director, Corporate Ratings, India Ratings and Research (Fitch Group), says, “In April-August 2018, commercial vehicles grew at around 41.7 per cent which includes 54.9 per cent growth in MHCVs (medium and heavy CVs) while LCVs (light commercial vehicles) recorded a growth of 34.4 per cent. This was partly due to a lower base in April-June 2017 when the MHCVs industry hit the bottom on account of the transition to BS IV emission norms after Supreme Court of India’s sudden ban on BS III-complaint CVs from April 1, 2017, which led to a significant pre-buying in March 2017 and inadequate supply of BS IV-compliant vehicles during April-June 2017. Further, GST implementation from 1 July 2017 also led to dealers liquidating their inventory as well as deferral of purchases from consumers in anticipation of lower prices post GST.”

M&HCV growing stronger
Growth in the M&HCV (truck) segment was robust at 19 per cent in 2017-18 and 62.5 per cent in YTD 2018-19, supported by pickup in industrial and infrastructure projects, particularly roads, irrigation and affordable housing. “Bolstered by the economic revival in the country, cargo demand has been healthy, offering further impetus to growth. Additionally, sectors like auto carriers, 3PL players, cement, steel and oil tankers have also contributed to growth. Supported by positive underlying factors like pent-up demand post GST implementation and macro-economic recovery, the growth momentum is expected to continue in 2018-19 as well, with M&HCV (trucks) expected to grow in the range of 18-20 per cent,” opines Shamsher Dewan.

According to Shruti Saboo, the growth in MHCV is supported by several fundamentals like improved economic activity as indicated by the Industrial Production Index (which has remained close to or above 4 per cent since November 2017), higher construction and road infrastructure development and improvement in mining activities which has seen a positive growth since March 2018. “While the growth momentum is likely to continue in 2HFY19, the growth rate would moderate due to higher base. GST implementation has also enabled logistical efficiencies, which are likely to improve further with e-way bill, and hence be a positive driver for volume growth,” she adds.

LCV on a recovery path
The LCV segment also registered a healthy growth of 29 per cent in 2017-18, with the segment having commenced its recovery trajectory after three years of subdued demand. In addition to replacement-led demand, the demand momentum has been supported by pick-up in rural demand and increased requirement of small vehicles for last-mile logistics for e-commerce focused companies. Shamsher Dewan adds, “Furthermore, the financing environment has significantly improved over recent quarters, with stable delinquency levels, which has provided further impetus to LCV (Truck) sales. ICRA believes the LCV (Truck) segment is on a structural uptrend and would continue on its growth trajectory during the current fiscal, with 18-20 per cent growth in 2018-19. Over the medium-term, the segment would also benefit from roll-out of GST and its impact on logistics sector and preference for hub-and-spoke model.”

LCV sales volume grew around 36 per cent YoY (year-on-year) in April-July 2018. “Ind-Ra expects a continued strong demand in the LCV segment in 2HFY19, albeit at a lower rate due to a high base. LCV demand will be supported by improved demand from the rural segment, last-mile transportation and likely exponential growth in the online retail segment,” says Shruti Saboo.

Bus segment: An exception
In 2017-18, Indian vehicle sales across categories increased, except in passenger buses segment, which suffered due to weak demand from the state road transport undertakings (SRTUs). “Over FY 2014 to 2018, commercial vehicle market has grown with CAGR of 7.9 per cent. FY 18 was a rapid growth year with almost 20 per cent volume growth. Post GST, there is a huge surge in demand for higher tonnage vehicles, ie MHCV, from Q2 vs Q4. Maruti entered the small CV segment with Super carry and gained significant market share. However, bus category suffered a decline due to squeeze in public spending and financial weakness at the state transport units. Over the current financial year we expect the total commercial vehicle sales to grow by 8-10 per cent,” says Kavan Mukhtyar, Partner & Leader - Automotive, PwC India.

The bus segment reported softening of sales in 2017-18 with 14 per cent de-growth, primarily due to lower order inflows from SRTUs (which accounts for one-third of bus sales in India). However, sales picked up in the current fiscal, with 19 per cent growth so far, albeit on the low base. Sruthi Thomas, Senior Analyst, ICRA, opines, “While volumes in the larger >12T segment has recovered, growth will be led by the <12T segment, on the back of demand for school buses, last-mile connectivity and feeder route buses. ICRA expects volumes to grow by 12-14 per cent in FY 2019, aided by replacement-led demand post a year of slow-down. Over the medium term, the segment would continue to benefit from the Government’s focus on improving urban as well as rural transportation and initiatives such as smart cities, in addition to healthy demand from relatively new segments like online aggregators and staff carriers.”

Surging fuel prices, searching for alternatives
With fuel prices skyrocketing in the last few months, cost of operations for people involved in transport business such as school & private bus operators, logistics, is also going up. “With continuous increase in diesel rates, smaller fleet operators in CV are likely to be affected, as the increase in freight rate so far is not commensurate with the increase diesel prices. This would impact the profitability of smaller fleet operators and thus in turn impact the demand for additional fleet,” explains Shruti Saboo.

Though the government of India has been emphasising on EVs, and other non-fossil fuels, Ind-Ra does not expect a significant impact due to lack of adequate infrastructure. Shruti Saboo adds, “We believe that the change in terms of EV adoption or conversion to CNG would be seen in passenger carriers (buses) and lower tonnage CVs (below 2T), which is mainly used for intra-city transportation, rather than MHCV goods carrier. Further as MHCV is majorly used for long distance goods transportation, a huge infrastructure set up across the nation would be required to make it viable.”

Currently most of the CVs in India run on diesel and the penetration of non-fossil fuel powered CVs in the country remains quite limited, especially in the truck segment. Among the various non-fossil fuels available commercially, CNG is now well accepted fuel for running vehicles, globally. However, the penetration of other fuels, even LNG is still relatively miniscule.

In order to bring down fuel import bill and encourage usage of non-fossil fuel consumption, Union Transport Minister Nitin Gadkari recently announced that CVs using non-fossil fuels will be exempted from permit requirements. But, will this move propel sales of CVs running on non-fossil fuels? Kavan Mukhtyar answers, “This would affect only the bus segment (passenger) with adoption of CNG being the highest among the alternate fuels. We see adoption of electric and hybrid bus witnessing fast growth. However the operating economics of these vehicles will be crucial for their long term viability.”

In India, currently, although some development and testing work has been ongoing regarding the use of LNG-powered vehicles, the same is in the pilot stage and challenges related to LNG infrastructure etc continue to exist. More than exemptions related to permits, the adoption would gain pace when challenges related to infrastructure get addressed. “As per industry estimates, LNG fueling stations are likely to be more expensive than diesel due to complex storage facility and fueling requirements. Hence, setting up fueling infrastructure supported by a well executed Government policy will remain key. Additionally, pricing of LNG-based vehicles will also be an important factor, especially in the Indian context given the fragmented nature of logistics industry. Accordingly, development of cost effective technologies, projected economies of scale and potential subsidies by the Government to promote LNG will determine the acceptance of LNG-based vehicles going forward,” says Shamsher Dewan.

Changing emission norms
With BS-VI emission norms to be implemented from April 2020, vehicle technologies are likely to witness significant upgradation, with major changes in engine design and after treatment systems. “For instance, to meet stringent BS-VI norms, fuel burn efficiency will have to improve, which will entail engines to withstand greater pressure which would require certain changes in engine design and more specifically materials that will be used for manufacturing,” opines Shamsher Dewan.

In addition, to control tail pipe emissions (ie NOx, PM), diesel particulate filter (DPF) hitherto not present in vehicles will become mandatory besides components for SCRs and EGRs. Shamsher Dewan adds, “CV OEMs are currently in the phase of developing these new vehicles and testing them prior to the nation-wide implementation in April 2020. VECV has already developed and certified a BS VI compliant CNG vehicle recently, and further such roll-outs are expected by the various CV OEMs over upcoming months. With a price differential of 8-10 per cent expected with existing vehicles, this is likely to result in significant pre-buying during 2019-20.”

With the industry preparing itself for transition towards BS-VI norms, both OEMs and auto ancillary are incurring capex and R&D towards the same. Shruti Saboo observes, “The OEMs and ancillaries with presence in global markets are better verse with the new regulatory norms. Ind-Ra also notes that several technological tie-ups with global players are happening in the ancillary space to gain access to required technology. Given that the judiciary did not extend the timelines related to BS-IV transition in the past which created a short term blip in the CV industry, it is likely that OEMs would launch BS-VI compliant vehicles before the timeline of April 2020.”

Electrification of CVs
As the government has put strong focus on electric vehicles within the country, public transportation fleets are likely to take the lead in electrification. The same is already underway, with some SRTUs and city transport bodies placing orders for electric buses. This includes order for 25 buses by Himachal Road Transport Corporation, 100 buses by Thane
Municipal Corporation, 150 buses by Bangalore Metropolitan Transport Corporation and 6 buses by Brihan Mumbai Electricity Supply & Transport Undertaking. “With an annual replacement demand of approximately 15,000 buses for SRTUs, there exists sizeable opportunity for increase in e-bus sales in India,” opines Sruthi Thomas.

To tap the emerging opportunity, many Indian OEMs (including JBM Auto-Solaris, Goldstone-BYD, Ashok Leyland-Optare, etc) have entered into collaborations with foreign entities for technology related to electrification. According to Sruthi Thomas, technology availability is not expected to be a key deterrent for CV electrification in India. Nevertheless, ICRA expects the electrification of CV segment to be a slow process in the country, which would start with buses and LCVs initially, and roll-out to M&HCV (trucks) only over a longer time frame.

Shruti Saboo adds, “A shift towards EVs would also depend on economic viability of EVs in relation to internal combustion engine and inadequate resources of lithium and cobalt in India.”
Although electric CVs market at present is miniscule, it is enticing OEMs and their suppliers to invest in technologies to meet the requirements of the future. “We see traditional OEMs launching a range of hybrid and battery electric vehicles in the CV segment. Also a host of new players are into these segments. Primarily there are 4 major components in an electric powertrain - battery pack & BMS (battery management system), motors, power electronics and integrated transmission. Battery and motors contribute to more than 60 per cent of the vehicle cost. Chinese and Japanese suppliers are the major suppliers to the Indian market. We are witnessing growing interest from Indian component makers into this space,” explains Kavan Mukhtyar.

Growth momentum to continue
The commercial vehicle industry is in the midst of several regulatory changes and technological changes focused towards emission and safety norms, telematics, and driver comfort. “The upcoming regulatory changes include BS VI, scrappage policy for CVs aged over 20 years, and the higher axle load norms announced in August 2018 which would require several upgradations from OEMs. These include features like emergency button, advanced navigation system, dual panel cabins, new criteria on body building which are likely to become mandatory in coming years,” opines Shruti Saboo.

Historically, the industry has seen a lot of pre-buying and stock pull. FY19-FY20 may also see some pre-buying of CVs before BS VI takes effect. OEMs have also announced that their product plans are place and are well-prepared for the shift to BS VI. BS VI compliant fuel availability is also being ramped up to meet the deadlines.

“We expect continued regulatory volatility challenging the commercial vehicle industry. Competitors will have to be agile and resilient in their response to the market changes. Companies will have to focus on cost reduction to ensure profitability while relooking at their organisation structure to be fast paced in the market,” concludes Kavan Mukhtyar.

Driven by strong performance of the truck segment, India's commercial vehicles (CVs) industry reached its highest sales peak after 5 years in 2017-18 with 856,453 units being sold. “The CVs industry reported strong growth in 2017-18, with volumes expanding at 20 per cent compared to 2016-17. The industry recorded a 42 per cent year to date (YTD) growth in 2018-19. Among the various sub-segments of the CV industry, the goods carrier/truck segment expanded healthily in both periods, while the passenger carrier/bus segment has revived in the current fiscal post a year of subdued sales in 2017-18,” states Shamsher Dewan, VP Corporate Ratings ICRA. The robust growth of CVs industry comes on the backdrop of a lower base which saw the implementation of Bharat Stage (BS) IV rules and GST implementation. Shruti Saboo, Associate Director, Corporate Ratings, India Ratings and Research (Fitch Group), says, “In April-August 2018, commercial vehicles grew at around 41.7 per cent which includes 54.9 per cent growth in MHCVs (medium and heavy CVs) while LCVs (light commercial vehicles) recorded a growth of 34.4 per cent. This was partly due to a lower base in April-June 2017 when the MHCVs industry hit the bottom on account of the transition to BS IV emission norms after Supreme Court of India’s sudden ban on BS III-complaint CVs from April 1, 2017, which led to a significant pre-buying in March 2017 and inadequate supply of BS IV-compliant vehicles during April-June 2017. Further, GST implementation from 1 July 2017 also led to dealers liquidating their inventory as well as deferral of purchases from consumers in anticipation of lower prices post GST.”

M&HCV growing stronger
Growth in the M&HCV (truck) segment was robust at 19 per cent in 2017-18 and 62.5 per cent in YTD 2018-19, supported by pickup in industrial and infrastructure projects, particularly roads, irrigation and affordable housing. “Bolstered by the economic revival in the country, cargo demand has been healthy, offering further impetus to growth. Additionally, sectors like auto carriers, 3PL players, cement, steel and oil tankers have also contributed to growth. Supported by positive underlying factors like pent-up demand post GST implementation and macro-economic recovery, the growth momentum is expected to continue in 2018-19 as well, with M&HCV (trucks) expected to grow in the range of 18-20 per cent,” opines Shamsher Dewan.

According to Shruti Saboo, the growth in MHCV is supported by several fundamentals like improved economic activity as indicated by the Industrial Production Index (which has remained close to or above 4 per cent since November 2017), higher construction and road infrastructure development and improvement in mining activities which has seen a positive growth since March 2018. “While the growth momentum is likely to continue in 2HFY19, the growth rate would moderate due to higher base. GST implementation has also enabled logistical efficiencies, which are likely to improve further with e-way bill, and hence be a positive driver for volume growth,” she adds.

LCV on a recovery path
The LCV segment also registered a healthy growth of 29 per cent in 2017-18, with the segment having commenced its recovery trajectory after three years of subdued demand. In addition to replacement-led demand, the demand momentum has been supported by pick-up in rural demand and increased requirement of small vehicles for last-mile logistics for e-commerce focused companies. Shamsher Dewan adds, “Furthermore, the financing environment has significantly improved over recent quarters, with stable delinquency levels, which has provided further impetus to LCV (Truck) sales. ICRA believes the LCV (Truck) segment is on a structural uptrend and would continue on its growth trajectory during the current fiscal, with 18-20 per cent growth in 2018-19. Over the medium-term, the segment would also benefit from roll-out of GST and its impact on logistics sector and preference for hub-and-spoke model.”

LCV sales volume grew around 36 per cent YoY (year-on-year) in April-July 2018. “Ind-Ra expects a continued strong demand in the LCV segment in 2HFY19, albeit at a lower rate due to a high base. LCV demand will be supported by improved demand from the rural segment, last-mile transportation and likely exponential growth in the online retail segment,” says Shruti Saboo.

Bus segment: An exception
In 2017-18, Indian vehicle sales across categories increased, except in passenger buses segment, which suffered due to weak demand from the state road transport undertakings (SRTUs). “Over FY 2014 to 2018, commercial vehicle market has grown with CAGR of 7.9 per cent. FY 18 was a rapid growth year with almost 20 per cent volume growth. Post GST, there is a huge surge in demand for higher tonnage vehicles, ie MHCV, from Q2 vs Q4. Maruti entered the small CV segment with Super carry and gained significant market share. However, bus category suffered a decline due to squeeze in public spending and financial weakness at the state transport units. Over the current financial year we expect the total commercial vehicle sales to grow by 8-10 per cent,” says Kavan Mukhtyar, Partner & Leader - Automotive, PwC India.

The bus segment reported softening of sales in 2017-18 with 14 per cent de-growth, primarily due to lower order inflows from SRTUs (which accounts for one-third of bus sales in India). However, sales picked up in the current fiscal, with 19 per cent growth so far, albeit on the low base. Sruthi Thomas, Senior Analyst, ICRA, opines, “While volumes in the larger >12T segment has recovered, growth will be led by the <12T segment, on the back of demand for school buses, last-mile connectivity and feeder route buses. ICRA expects volumes to grow by 12-14 per cent in FY 2019, aided by replacement-led demand post a year of slow-down. Over the medium term, the segment would continue to benefit from the Government’s focus on improving urban as well as rural transportation and initiatives such as smart cities, in addition to healthy demand from relatively new segments like online aggregators and staff carriers.”

Surging fuel prices, searching for alternatives
With fuel prices skyrocketing in the last few months, cost of operations for people involved in transport business such as school & private bus operators, logistics, is also going up. “With continuous increase in diesel rates, smaller fleet operators in CV are likely to be affected, as the increase in freight rate so far is not commensurate with the increase diesel prices. This would impact the profitability of smaller fleet operators and thus in turn impact the demand for additional fleet,” explains Shruti Saboo.

Though the government of India has been emphasising on EVs, and other non-fossil fuels, Ind-Ra does not expect a significant impact due to lack of adequate infrastructure. Shruti Saboo adds, “We believe that the change in terms of EV adoption or conversion to CNG would be seen in passenger carriers (buses) and lower tonnage CVs (below 2T), which is mainly used for intra-city transportation, rather than MHCV goods carrier. Further as MHCV is majorly used for long distance goods transportation, a huge infrastructure set up across the nation would be required to make it viable.”

Currently most of the CVs in India run on diesel and the penetration of non-fossil fuel powered CVs in the country remains quite limited, especially in the truck segment. Among the various non-fossil fuels available commercially, CNG is now well accepted fuel for running vehicles, globally. However, the penetration of other fuels, even LNG is still relatively miniscule.

In order to bring down fuel import bill and encourage usage of non-fossil fuel consumption, Union Transport Minister Nitin Gadkari recently announced that CVs using non-fossil fuels will be exempted from permit requirements. But, will this move propel sales of CVs running on non-fossil fuels? Kavan Mukhtyar answers, “This would affect only the bus segment (passenger) with adoption of CNG being the highest among the alternate fuels. We see adoption of electric and hybrid bus witnessing fast growth. However the operating economics of these vehicles will be crucial for their long term viability.”

In India, currently, although some development and testing work has been ongoing regarding the use of LNG-powered vehicles, the same is in the pilot stage and challenges related to LNG infrastructure etc continue to exist. More than exemptions related to permits, the adoption would gain pace when challenges related to infrastructure get addressed. “As per industry estimates, LNG fueling stations are likely to be more expensive than diesel due to complex storage facility and fueling requirements. Hence, setting up fueling infrastructure supported by a well executed Government policy will remain key. Additionally, pricing of LNG-based vehicles will also be an important factor, especially in the Indian context given the fragmented nature of logistics industry. Accordingly, development of cost effective technologies, projected economies of scale and potential subsidies by the Government to promote LNG will determine the acceptance of LNG-based vehicles going forward,” says Shamsher Dewan.

Changing emission norms
With BS-VI emission norms to be implemented from April 2020, vehicle technologies are likely to witness significant upgradation, with major changes in engine design and after treatment systems. “For instance, to meet stringent BS-VI norms, fuel burn efficiency will have to improve, which will entail engines to withstand greater pressure which would require certain changes in engine design and more specifically materials that will be used for manufacturing,” opines Shamsher Dewan.

In addition, to control tail pipe emissions (ie NOx, PM), diesel particulate filter (DPF) hitherto not present in vehicles will become mandatory besides components for SCRs and EGRs. Shamsher Dewan adds, “CV OEMs are currently in the phase of developing these new vehicles and testing them prior to the nation-wide implementation in April 2020. VECV has already developed and certified a BS VI compliant CNG vehicle recently, and further such roll-outs are expected by the various CV OEMs over upcoming months. With a price differential of 8-10 per cent expected with existing vehicles, this is likely to result in significant pre-buying during 2019-20.”

With the industry preparing itself for transition towards BS-VI norms, both OEMs and auto ancillary are incurring capex and R&D towards the same. Shruti Saboo observes, “The OEMs and ancillaries with presence in global markets are better verse with the new regulatory norms. Ind-Ra also notes that several technological tie-ups with global players are happening in the ancillary space to gain access to required technology. Given that the judiciary did not extend the timelines related to BS-IV transition in the past which created a short term blip in the CV industry, it is likely that OEMs would launch BS-VI compliant vehicles before the timeline of April 2020.”

Electrification of CVs
As the government has put strong focus on electric vehicles within the country, public transportation fleets are likely to take the lead in electrification. The same is already underway, with some SRTUs and city transport bodies placing orders for electric buses. This includes order for 25 buses by Himachal Road Transport Corporation, 100 buses by Thane
Municipal Corporation, 150 buses by Bangalore Metropolitan Transport Corporation and 6 buses by Brihan Mumbai Electricity Supply & Transport Undertaking. “With an annual replacement demand of approximately 15,000 buses for SRTUs, there exists sizeable opportunity for increase in e-bus sales in India,” opines Sruthi Thomas.

To tap the emerging opportunity, many Indian OEMs (including JBM Auto-Solaris, Goldstone-BYD, Ashok Leyland-Optare, etc) have entered into collaborations with foreign entities for technology related to electrification. According to Sruthi Thomas, technology availability is not expected to be a key deterrent for CV electrification in India. Nevertheless, ICRA expects the electrification of CV segment to be a slow process in the country, which would start with buses and LCVs initially, and roll-out to M&HCV (trucks) only over a longer time frame.

Shruti Saboo adds, “A shift towards EVs would also depend on economic viability of EVs in relation to internal combustion engine and inadequate resources of lithium and cobalt in India.”
Although electric CVs market at present is miniscule, it is enticing OEMs and their suppliers to invest in technologies to meet the requirements of the future. “We see traditional OEMs launching a range of hybrid and battery electric vehicles in the CV segment. Also a host of new players are into these segments. Primarily there are 4 major components in an electric powertrain - battery pack & BMS (battery management system), motors, power electronics and integrated transmission. Battery and motors contribute to more than 60 per cent of the vehicle cost. Chinese and Japanese suppliers are the major suppliers to the Indian market. We are witnessing growing interest from Indian component makers into this space,” explains Kavan Mukhtyar.

Growth momentum to continue
The commercial vehicle industry is in the midst of several regulatory changes and technological changes focused towards emission and safety norms, telematics, and driver comfort. “The upcoming regulatory changes include BS VI, scrappage policy for CVs aged over 20 years, and the higher axle load norms announced in August 2018 which would require several upgradations from OEMs. These include features like emergency button, advanced navigation system, dual panel cabins, new criteria on body building which are likely to become mandatory in coming years,” opines Shruti Saboo.

Historically, the industry has seen a lot of pre-buying and stock pull. FY19-FY20 may also see some pre-buying of CVs before BS VI takes effect. OEMs have also announced that their product plans are place and are well-prepared for the shift to BS VI. BS VI compliant fuel availability is also being ramped up to meet the deadlines.

“We expect continued regulatory volatility challenging the commercial vehicle industry. Competitors will have to be agile and resilient in their response to the market changes. Companies will have to focus on cost reduction to ensure profitability while relooking at their organisation structure to be fast paced in the market,” concludes Kavan Mukhtyar.

Table 1: Domestic CV sales

2017-18

2016-17

% Change

No of CVs sold in domestic market

856,459

714,082

19.94 per cent

Source: Society of Indian Automobile Manufacturers

LCV (Truck) segment is on a structural uptrend and would continue on its growth trajectory during the current fiscal, with 18-20 per cent growth in 2018-19.

- Shamsher Dewan,
VP Corporate Ratings ICRA

We see adoption of electric and hybrid bus witnessing fast growth. However the operating economics of these vehicles will be crucial for their long term viability.

- Kavan Mukhtyar,
Partner & Leader - Automotive, PwC India

Top 5 trends in CVs

According to Shamsher Dewan, VP Corporate Ratings ICRA, some of the key long-term trends visible in the CV industry are:

Shift towards higher-tonnage trucks: Over recent years, there has been increasing preference for higher tonnage trucks. Accordingly, the average tonnage per truck sold in India has increased from 14T in 2008-09 to 18T in 2017-18. This has been aided by multiple factors including lower cost of operations, consolidation of warehouses, improvement in road infrastructure, stricter implementation of overloading restrictions, shortage of drivers and availability of higher tonnage truck models among others.

Expected increased competition from railways: With the commercialisation of Dedicated Freight Corridors and the strong focus on shifting transportation towards cheaper and more efficient modes of transportation like railways, ICRA expects the road segment to face increased competitive intensity going forward.

Evolving regulations: There has been increased tightening of emission norms and safety standards, in addition to greater focus on driver comfort and assistance, which has been and would further increase the capital costs associated with CV ownership.

Alternate fuel adoption: Alternate fuels like LNG and electric vehicles are expected to witness increased adoption over upcoming years, although development of infrastructure for the same and pricing of the vehicles remain the key concerns.

Increased use of telematics: Upcoming technologies like connected trucks, fleet management systems etc are likely to improve efficiencies in the system and lower overall cost of operations.

Continuous increase in diesel rates would impact the profitability of smaller fleet operators and, thus, in turn impact the demand for additional fleet.